| Wilko v. Swan | |
|---|---|
 | |
| Argued October 21, 1953 Decided December 7, 1953 | |
| Full case name | Anthony Wilko v. Joseph E. Swan, et al., individually and doing business under the firm name and style of Hayden, Stone & Co., Defendants and Third-Party Plaintiffs, and Haven B. Page, Defendant (James A. McCabe, Third-Party Defendant). |
| Docket no. | 53-39 |
| Citations | 346 U.S. 427 (more) 74 S. Ct. 182; 98 L. Ed. 168 |
| Case history | |
| Prior | Stay pending arbitration denied, 107 F. Supp. 75 (S.D.N.Y. 1952); rev'd, 201 F.2d 439 (2nd Cir. 1953); cert. granted, 345 U.S. 969 (1953). |
| Subsequent | retrial ordered, 127 F. Supp. 55 (S.D.N.Y. 1955) |
| Holding | |
| Federal Arbitration Act does not supersede provisions of Securities Act of 1933 forbidding waiver of right to litigate fraud claims where contract between broker and investor had binding predispute arbitration clause; arbitration does not provide equivalent legal and procedural protections as judicial forum. Second Circuit reversed. | |
| Court membership | |
| |
| Case opinions | |
| Majority | Reed |
| Concurrence | Jackson |
| Dissent | Frankfurter, joined by Minton |
| Laws applied | |
| Federal Arbitration Act, Securities Act of 1933 | |
Overruled by | |
| Rodriguez de Quijas v. Shearson/American Express Inc., 490 U.S. 477 (1989) | |
Wilko v. Swan, 346 U.S. 427 (1953), is a United States Supreme Court decision on the arbitration of securities fraud claims. It had originally been brought by an investor who claimed his broker at Hayden Stone had sold stock to him without disclosing that he and the firm were the primary sellers. By a 7–2 margin the Court held that the provisions of the Securities Act of 1933 barring any waiver of rights under that statute took precedence over the Federal Arbitration Act's (FAA) requirement that arbitration clauses in contracts be given full effect by federal courts. It reversed a decision to the contrary by a divided panel of the Second Circuit Court of Appeals.
Justice Stanley Forman Reed wrote the majority opinion that relied on the explicit wording in the Securities Act and expressed doubt as to whether arbitration could truly protect the rights of investors. Robert H. Jackson wrote a short concurrence distancing himself slightly from that latter opinion. Felix Frankfurter dissented, taking issue with the majority's hostility to arbitration.
Later the logic of the decision was extended by an appeals court to cover claims made under the Securities Exchange Act of 1934. The Supreme Court itself later expressed doubt as to the legal soundness of that holding, and in the 1985 case Shearson/American Express Inc. v. McMahon expressly held that it did not. This led lower courts to begin to overrule Wilko as well, and in 1989 the Court itself did so in Rodriguez de Quijas v. Shearson/American Express Inc., part of a series of decisions in the 1980s and ever since that greatly expanded the use of arbitration in dispute resolution.
Although the decision was overruled, one aspect of it survived Rodriguez de Quijas: Reed's dictum that "manifest disregard" for the law would be enough to justify a court's overturning an arbitral award. Later courts and commentators have puzzled over what that meant and whether it arose from the text of the FAA or independently. The Court itself would face that question in the 2008 Hall Street Associates, L.L.C. v. Mattel, Inc., although without resolving it to much satisfaction.